Microsoft increases revenue and net income despite declines in software and hardware for its FY23 Q3 earnings

Microsoft’s third quarter earnings report for its fiscal year 2023 is a mixed bag for the company as its post revenue of $52.9 billion with a net income of $18.3 billion representing a 7 and 9 percent increase year over year respectively, while also marking some noteworthy declines in Windows OEM, devices and Xbox revenue.

An ongoing slump in the PC market marks another three months of declining revenue for Microsoft and its OEM partners. With the PC market down around 30 percent of what it was last year, and already being down from the heights it gained during the pandemic, Microsoft’s More Personal Computing business was hit the hardest by the latest trajectory.

Microsoft reported that the More Personal Computing businesses brought in $13.3 billion in revenue which represents a 9 percent decrease year over year. Some of the main offenders in the MPC business portfolio include Windows OEM licensing being down by 28 percent year over year as well as the Devices tallying a 30 percent revenue decrease. It should be noted that Microsoft sought to bundle its HoloLens business under its Devices division last quarter and shuttered much of the development for its Mixed Reality headset subsequently.

Microsoft’s Xbox efforts also weighed on the MPC business report with its own hardware revenue decline of 30 percent, some of which the company attributes to supply constraints in 2023.

On the flipside, Microsoft reported better than expected growth in its cloud services business with Azure tracking $22.1 billion for the quarter, a 16 percent increase year over year. Azure, under the server products and cloud services label saw a 25 percent revenue increase specifically for Microsoft.

Microsoft’s Productivity and Business Processes division also raked in $17.5 billion for the quarter, an 11 percent increase for the company with Officer Commercial products leading the pack with its own 13 percent revenue increase year over year.

For more details and context, below are the investors notes:

Revenue in Productivity and Business Processes was $17.5 billion and increased 11% (up 15% in constant currency), with the following business highlights:

• Office Commercial products and cloud services revenue increased 13% (up 17% in constant currency) driven by Office 365 Commercial revenue growth of 14% (up 18% in constant currency)
• Office Consumer products and cloud services revenue increased 1% (up 4% in constant currency) and Microsoft 365 Consumer subscribers grew to 65.4 million
• LinkedIn revenue increased 8% (up 10% in constant currency)
• Dynamics products and cloud services revenue increased 17% (up 21% in constant currency) driven by Dynamics 365 revenue growth of 25% (up 29% in constant currency)

Revenue in Intelligent Cloud was $22.1 billion and increased 16% (up 19% in constant currency), with the following business highlights:

• Server products and cloud services revenue increased 17% (up 21% in constant currency) driven by Azure and other cloud services revenue growth of 27% (up 31% in constant currency)

Revenue in More Personal Computing was $13.3 billion and decreased 9% (down 7% in constant currency), with the following business highlights:

• Windows OEM revenue decreased 28%
• Devices revenue decreased 30% (down 26% in constant currency)
• Windows Commercial products and cloud services revenue increased 14% (up 18% in constant currency)
• Xbox content and services revenue increased 3% (up 5% in constant currency)
• Search and news advertising revenue excluding traffic acquisition costs increased 10% (up 13% in constant currency)

Microsoft returned $9.7 billion to shareholders in the form of share repurchases and dividends in the third quarter of fiscal year 2023.

Microsoft also made note of some of its product releases and other highlights for the quarter that include Smart Store Anlytics, Microsoft Sustainability Manager, Viva Goals and Power BI integration, Azure Virtual Desktop Insights at Scale, The Windows 365 app, Jupyter Notebooks and Python scripts in Teams Assignments, Generative AI in LinkedIn, GitHub Copilot X, Bing AI chat bot and a whole host of new features for Teams.

Microsoft will speak to investors later today on its earnings call in regards to continue shedding of jobs, upcoming CMA regulatory review conclusion, future plans for AI and more.